Nowhere in business does a transaction display the need for management of risks than those found in corporate mergers and acquisitions. The key enterprise risk is the acquiring firm paying more than the true value of the acquisition target. Post-transaction, this could diminish overall corporate return on investment or, more drastically, cause the financial demise of the entire organization. Pure risk of accidental loss, not properly considered prior to, during, or immediately after the transaction, can also severely reduce the value of the deal.
Many larger corporations have a department or team that performs the formal acquisition procedures. Others will pull together a team to guide the acquisition process which will include tax, accounting, legal, operations and others which often include “outside professionals”.
Because confidentiality is of paramount importance to the success of the negotiations, the team is usually a very small group, and often risk management professionals are not viewed as an essential member of that group. The risk management implications of the proposed acquisition may not be given much consideration and firm’s management may elect not to involve risk management until the decision to acquire has been made.
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